The age of heretics

Citings / Art Kleiner, Jan 2, 2002, 09.56pm IST

return on investment is important-for the same reason that a score is important in any game. it provides a signal of your effectiveness. but no one plays a game solely for the score, and when roi becomes a business's purpose, then its managers have delegated authority to the numbers. they send an implicit message to customers: "we depend upon you merely for our revenues. we're willing to make a buck off your back in any way we can." they sour relationships with employees, by letting them know that any rhetoric about "all being in this together" will be empty rhetoric. they drain away the vernacular spirit that nurtures the people of the firm. shareholders themselves should also be wary of a company that puts its purpose in their hands. when a company sends the message, through its communications to stock analysts, that it will do anything necessary for short-term capital (typically meaning that it will slash costs and lay people off frantically), that ensures that the capital it raises will be short-term-ready to switch to any other company that promises to slash costs more. sooner or later, a company that is built around this purpose will falter. its competitive advantage will wither away, since any enterprise can dedicate itself to returning investment on capital-merely by reinvesting it. finally, the belief that the purpose of a corporation is return on investment is the root cause of excessive legislation. if a company is not credited with ethical capability -— if its fundamental purpose makes it basically socially irresponsible -— then government will feel obliged to set enough rules to rein the company in. the company's ability to act with impunity, like that of any irresponsible creature, will be increasingly limited...